Like the global nuclear power club, India is set to join the anti-money
laundering syndicate – Financial Action Task Force (FATF) -later this year,
which will help local banks access developed country markets more easily.

Until recently, the United States was denying ICICI Bank, Bank of Baroda andState Bank of India branch licences on the grounds that India was not a
member of the FATF. These banks managed to win a temporary reprieve after
the government and the Reserve Bank of India (RBI) withheld fresh branch
permission to the likes of Citibank.

But sources involved in the negotiations with FATF said that India has
completed all but one formality – to amend the Prevention of Money Launder
Act (PMLA) – to include a host of offenses, such as insider trading and
human trafficking, in the schedule of offences. “This was an oversight that
will soon be taken care of,” an official said. The Bill to amend the PMLA is
expected to be placed in Parliament next month and the government will be
able to share the provisions of the proposed law and win a membership.

The sources said that the other six major prerequisites for a membership
have already been put in place. For instance, the FATF – that has 35
members, with India being an observer – wanted the government to establish a
trail of all foreign exchange transactions, including hawala.

While the RBI has put in place a trail by asking agents, including those for
wire transfer, to maintain records for a specified period of time, it
managed to convince FATF that hawala deals could not be tracked as such
transactions were illegal.

The other five commandments have already been complied with since the
government last year notified changes to the rules related to the PMLA,
specifying that suspected cases of terror financing would be part of the
suspicious transaction reporting system.

The other four specifications were in place as soon as the PMLA came into
effect. They included naming of enforcement agencies to deal with the
notified laws and mandating ‘know your client (KYC)’ norms that would be
legally binding.

The establishment of the Financial Intelligence Unit (FIU-Ind) two years ago
was also part of the exercise to gain a membership of the elite group.